Tough times for Canadian teams

I have written here several times before but I think it deserves repeating because this is could be a major issue in the months and possibly years to come and could have a significant negative impact on the smaller Canadian NHL franchises. The issue is the falling Canadian dollar. A season ago the dollar averaged fairly close to parity. Right now the Canadian dollar has dropped below 79 cents in US dollar terms. This is real bad news for teams like the Calgary Flames, Ottawa Senators and Edmonton Oilers, all of whom struggled for their survival in the late 1990’s and early 2000’s when the dollar ranged just 10 to 15 cents below where the dollar sits right now.

The reality is, the approximately 20 cent drop from a season ago essentially equates to a 25% rise in player salaries solely due to the drop in the Canadian dollar. Add to that the increase in the salary cap, which rose nearly 13%, and the Canadian franchises could see player costs rise as much as 45% this season in Canadian dollar terms.

Let’s use the Calgary Flames as an example. Last season they spent slightly below the cap at approximately $48.5 million and this season they are scheduled to spend about $57 million in salaries. In Canadian dollar terms, assuming a parity exchange rate a year ago and 80 cent exchange rate this season, last years payroll was $48.5 million CDN and this years payroll would equate to $71.25 million. In one year the Calgary Flames payroll increased $22.75 million, or 46.9%. Ouch. That has to hurt a businesses bottom line.

So far we haven’t seen much fall out from this but if the Canadian dollar remains this low next summer don’t be surprised if we see some Canadian franchises, particularly Ottawa, Calgary and Edmonton, look to shed salary. If the Canadian dollar drops to 70 cents or below we may once again hear talk of the small Canadian franchises struggling to be profitable and maybe even struggle to survive.

The CBC has an interesting article on this issue outlining how each of the Canadian teams payrolls will increase in Canadian dollar terms based on the exchange rate. Although the article is informative it should be noted that they calculated the exchange rates incorrectly and the actual values are higher than they present. For example, at the 80 cent mark they multiplied the teams payroll by 1.2 (increased it by 20%) but in fact they should have divided by 0.8 which in fact would increase it by 25%.

This article has 5 Comments

  1. I know we kind of covered this in the BoO, but this does not bode well for the salary cap either. If the Canadian teams are not as profitable this season, there is the possibility that the Salary Cap could drop, which would also leave any teams that are spending to the cap now with challenges as well (Ducks, Flyers, Wings?).

  2. Definitely. If the Canadian dollar remains below 80 cents US then it is very difficult to imagine the salary cap rising much if at all. It may even drop depending on how much the economic downturn affects things as well.

    The Flyers are probably the worst off having committed $45 million to next season already without having a goalie signed. But the Senators, Oilers and Flames aren’t much better off all having committed about $40 million already, especially if they decide they can no longer spend right to the salary cap because of the low Canadian dollar.

    The Ducks aren’t in too bad of a situation since they have Niedermayers salary coming off the books as well as Morrison, Marchant, R. Niedermayer, Beauchemin, Pahlson, etc. They will have some flexibility to readjust their pay scale.

  3. One of the big benefits for the Oilers is the new owner. He’s got deep pockets and while I am SURE he’s not looking to lose money, its a much different financial situation from the old EIG.

  4. I didn’t realize the Canadian dollar had dropped that much. It will be interesting to see the affect on the salary cap for next season. Between the US recession and that, the salary cap could well DROP next year, leaving several teams over the cap without a full roster signed…it could result in putting a real hurt on any free agents out there…hmmm.

  5. I believe… and correct if I’m wrong… that if the Cap goes down, then player salaries get rolled back by an appropriate percentage too. So teams at the limit now won’t necessarily be screwed.

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